Conflicting Signals in the Strong Jobs Data

Core unemployment fell sharply while the monthly pace of core wage growth decelerated. Broader measures look a little different.

With inflation (mostly) over, Federal Reserve officials have become increasingly focused on the state of the job market. Misplaced fears of rising unemployment over the summer¹ motivated the “recalibration” of short-term interest rates in September. Once officials realized that the earlier scare was largely noise, they pivoted once again.

Today’s numbers should reinforce their confidence. The headline unemployment rate fell from 4.2% to 4.1%, or, for the ultra-precise, from 4.231% to 4.086%. Even better, this understates the improvement implied by measures of unemployment and underemployment that tend to be more reliable indicators of labor market health. That is good news for anyone worried about an imminent downturn. The unemployment numbers could, however, be troubling to those who fear that increasingly confident workers will get larger pay raises and spend even more money bidding up the prices of goods and services.

Intriguingly, there was a notable month-to-month slowdown in the growth rate of average hourly pay for the workers who do most of America’s consumer spending. This deceleration was largely offset by an acceleration in wages for workers at both the high end and low end of the income distribution. It could all be noise, or it could be a sign that underlying inflation can get closer to the Fed’s longer-run goal of 2% a year without any hit to jobs.

Unemployment Back in the Box

The Bureau of Labor Statistics (BLS) divides the underemployed into many different groups based on how they got there, their expecations, and how frequently they have looked for something different. Three of these groups stand out for their reliability as indicators of cyclical conditions: